Understanding Credit Cards: Checking Your Credit

by Amy Lillard

Credit and credit cards are an integral part of our economic system today. But there is a lot of misinformation and misunderstandings about credit. In this continuing series, we examine key concepts, tips and best practices when it comes to credit cards.

(10/9/2012) Credit scores have long been a handy and quick encapsulation of a person's credit, and in effect their trustworthiness as a consumer and borrower.

For years, credit scores were shrouded in mystery â€" the Fair Isaac Corporation (FICO) that devised the main credit scoring formula rarely admitted credit scores existed, let alone how they were calculated. But in the last decade, the veils of secrecy have been blasted open. After pressure from consumer agencies and legislative bodies, FICO revealed the full story behind what's in credit reports, and what goes into credit scores.

This has translated to a transparency around credit scores that benefits consumers and lenders. Now individuals can easily survey their credit history, learn their credit score, and analyze how they can improve before applying for major loans or even applying for jobs. In fact, since credit and credit scores are so important in today's society, it's recommended that everyone check their credit report and score regularly to ensure accuracy.

To get a complete picture of your credit, the Federal Trade Commission authorizes www.annualcreditreport.com to obtain honest and complete reports. Each of the three main credit-reporting agencies (Equifax, Experian, and TransUnion) will provide one free annual report through this service. For an additional fee, you can obtain credit scores from each company.

Check your report regularly, and long before your apply for a major loan or other purchase. Doing this will allow you to screen for any negative items or identity theft that can lower your credit score or overall credit assessment. If you spot negative and/or inaccurate items on your report, you have the right to dispute it to the agency, which is required by federal law to investigate it within 30 days.

Along with the increased knowledge around credit reports and scores has come a variety of services that purport to help you understand and improve your credit. For the most part, these are unnecessary, and can even be detrimental. For example, credit monitoring services are usually provided for a fee, and merely provide updates you can get for free by checking the FTC site. More dangerously, there are services that claim to improve or change your credit score. Unfortunately, many of these are scams, charging money for services that don't work.